employment shares of traditional firms? And how much should we attribute to the fact that the employment growth rates of traditional firms are different in these two groups of economies, reflecting different progress in enterprise restructuring?

We consider 3 sources of differences in employment growth: ownership, sectors, and size. The decompositions are performed for the following groups of countries:

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Cohesion group versus the EU8 groups

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EU8 group versus SEE group

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EU8 group versus CIS group

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SEE group versus CIS group

In these comparisons, the first group plays the role of a benchmark (leaders) while the second group embraces the countries that, according to the transition literature, can be regarded as convergers or followers.

The decompositions separate the contributions to growth into the following categories of effects:

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Sectoral effects.

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Size effects, new private sector.

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State ownership effects.

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State ownership size effects.

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Privatized effects.

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Privatized size effects.

It is important to control for and quantify size effects because of the size differences between the different ownership categories of firms – new private firms are smaller than state-owned firms – and we need to distinguish between the effects of ownership and the dynamics of size. We allow for size effects that can vary across ownership categories.

The decomposition method is standard and is discussed in detail in the Appendix. In brief, we estimate regressions separately for each group of countries in which the dependent variable is the growth rate of employment, and the regressors are a set of